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Texas economist says OPEC cut won't create global shortage

Oil prices will likely be held in check as economics improve for some rival producers.

By Daniel J. Graeber
Economist in Texas says OPEC's production agreement doesn't necessarily mean there will be a shortage in oil. File Photo by Ian Halperin/UPI
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The OPEC-fueled market recovery hasn't been felt yet in Texas, where the energy sector appears to have bottomed out, an economist said.
The Texas Alliance of Energy Producers estimates total crude oil production for November was 93.7 million barrels, about 8.3 percent less than the prior year. Gas production was around 650 billion cubic feet, a decline of about 8.5 percent from November 2015. In terms of value, both oil and gas increased, but were still lower than the previous year.
Karr Ingham, an economist measuring broad-based factors to gauge the health of the state energy sector, said parts of Texas have been in decline for two consecutive years as of November. That gauge, however, was taken before members of the Organization of Petroleum Exporting Countries signed off on a deal that sidelined a collective 1.2 million bpd from the global market.
A survey from the Federal Reserve Bank of Dallas found 58 percent of the respondents believe the agreement will not be enforced. That sentiment has been shared by finance analysts and ministers from OPEC member states like Iran.
On when the market will return to balance, less than half of the respondents expected that to happen by the third quarter of 2017. Ingham, meanwhile, estimates other producers will adjust so that there won't be a physical shortage.
"Ultimately, a significant portion of that volume will be produced elsewhere -- Texas and the United States most notably -- and there is every possibility that [crude oil] prices will be held in check as a result," he said.
Ingham's metrics use oil priced at around $42.06 per barrel. West Texas Intermediate, the U.S. benchmark price for oil, was trading near $53 per barrel early Thursday.
The Dallas Fed said the state economy was still under pressure from the market downturn, but because the state economy is large and diversified, it's not as bad as would be expected for a state known as the energy capital of the United States.
Ingham estimated about 205,675 people in Texas were working in the exploration and production side of the industry, about 32.8 percent less than the peak in December 2014.

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